HQ 544933: Dutiability of Commissions Paid to Purported Buying Agent Your Reference: 91-2037-12(1)I

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                          HQ 544933
                        July 10, 1992
VAL CO:R:C:V 544933 ILK

CATEGORY: Valuation

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New York, NY  10017

Re:  Dutiability of Commissions Paid to Purported Buying Agent
     Your Reference: 91-2037-12(1)I

Dear -------------:

     This is in response to your letter of February 11, 1992
(hereinafter referred to as the "request").  On behalf of your
client, ------------------. (hereinafter referred to as the
"importer"), a United States corporation, you request a ruling on
whether a fee paid to a purported buying agent ------- ---------
----. (hereinafter referred to as the "agent"), a Panamanian
corporation, with offices in Nassau, Bahamas, is dutiable.  

FACTS:

     The importer imports footwear from Brazil and other foreign
countries, from unrelated sellers, and uses the agent in
connection with its purchases from Brazil.  The agent currently
serves as a buying agent for the importer, pursuant to an
agreement, an unsigned copy of which you attached as Exhibit "A"
(hereinafter referred to as the "existing agreement") to your
request.  Pursuant to the existing agreement the responsibilities
of the agent include assisting the importer "in the design,
styling and the building of lines of Products, including
obtaining models, prototypes and samples...from manufacturers,"
selecting manufacturers, ensuring observance of the importer's
styles, etc., ensuring timely delivery, providing product
information to manufacturers, selecting manufacturers, placing
orders and transmitting documents, maintaining order and product
records, seeing that appropriate tests and inspections are
carried out, and providing office space in Brazil for visiting
importer personnel and assisting importers personnel on visits to
such office and manufacturing facilities in Brazil.  The importer
pays the agent $------- per year, in monthly installments for
such services.  Currently other entities provide product
consolidation, inspection, and preparation of export
documentation services for the importer.  For those services
provided by the seller, the cost of the services are included in
the dutiable f.o.b. price.  

     The importer has a proposed agreement (a copy of which was
attached as Exhibit "B" and which will hereinafter be referred to
as the "proposed agreement") pursuant to which the 
responsibilities of the agent would be expanded to include those
which were previously provided by other entities.  It is stated
in the request and provided for in the proposed agreement, that
the agent is not related to and has no financial interest in any
of the sellers, and will not share its commission with any seller
and will not solicit or accept remuneration from any seller.  The
request states that the importer would be able to purchase the
merchandise without the agent, and that the agent is not
permitted to buy and sell for its own account in transactions
involving the importer.  Pursuant to the proposed agreement the
agent will not be paid any commissions for merchandise determined
to be defective, and the agent and seller are responsible for any
concealed shortages or overages greater than a certain number of
units, and shall be charged or credited as appropriate.  Pursuant
to the proposed agreement, for its services the agent will be
paid $--------- per year, in monthly installments, plus a fee
equal to -% - -% of the f.o.b. price of the merchandise ordered
and shipped pursuant to the agreement.

     The responsibilities of the agent to the importer pursuant
to the proposed agreement include those provided for in the
existing agreement (with the exception of assisting the importer
"in the design, styling and the building of lines of Products"),
plus: assisting in locating manufacturers and obtaining models
and samples, assisting in negotiating prices with manufacturers
designated by the importer and obtaining quotes, compiling market
information, placing orders and arranging payment terms based on
the importer's instructions, assisting in the documentation
necessary for the importation of merchandise, inspection of the
quality of merchandise shipped and providing periodic production
progress reports, assisting in the return of or obtaining
compensation for defective merchandise, maintaining inventory
records of material or finished products in the agent's
possession, arranging for consolidation of shipments and inland
freight at the direction of the importer, providing inspection
certificates as required by the importer, and attempting to
prevent the supplier's resale of rejected merchandise to others
without removal of markings identifying importer.

     Under the proposed agreement, each shipment will be
accompanied by a seller's invoice to the importer, and the
importer will make payment for the cost of the merchandise
purchased directly to the seller based on the price on the
commercial invoice.  The agent will provide the importer with a
separate invoice for the buying commissions.  The separate
invoice will also contain non-production related expenses
incurred on behalf of the importer, such as inland freight, which
expenses are to be incurred only with the consent of the
importer.

ISSUE:

     Whether the described services to be provided by the agent
pursuant to the proposed agency agreement are those of a bona
fide buying agent.

LAW AND ANALYSIS:

     The services described above have long been considered
characteristic of a buying agent.  See e.g.., Jay-Arr Slimwear
Inc. v. United States, 12 CIT 133, 681 F.Supp. 875 (1988); J.C.
Penney Purchasing Corp. et al. v. United States, 80 Cust. Ct. 84,
C.D. 4741, 451 F. Supp. 973 (1978).  In addition, in Rosenthal-
Netter, Inc. v. United States, 12 CIT 77, 679 F.Supp. 21, aff'd.
861 F.2d 261 (Fed. Cir. 1988), the court noted that the factors
in deciding whether a bona fide agency relationship exists
include: the right of the principal to control the agent's
conduct, the transaction documents, whether the intermediary was
operating an independent business primarily for its own benefits,
and the existence of a buying agency agreement.  We have ruled
that "the totality of the evidence must demonstrate that the
purported agent is in fact a bona fide buying agent and not a
selling agent or an independent seller."  Headquarters Ruling
Letter (HRL) 542141 dated September 29, 1980, also cited as TAA
No. 7.  Although no single factor is determinative, the primary
consideration is the "right of the principal to control the
agent's conduct with respect to the matters entrusted to him." 
J.C. Penney Purchasing Corp., 451 F.Supp. at 983.

     We note that the primary considerations in determining
whether a bona fide buying agency exists pursuant to the proposed
agreement are addressed in your request.  With respect to the
transaction documents, as you stated:

     [A]n invoice or other documentation from the actual
     foreign seller to the agent would be required to
     establish that the agent is not a seller and to
     determine the price actually paid or payable to the
     seller.

TAA No. 7.  Under the agreement at issue here, the seller is
providing an invoice directly to the importer.  However, assuming
that as stated in the request, the agent will receive no
remuneration from the seller, and the importer pays the seller
directly, the invoice to the importer is sufficient for the
purpose of establishing that the agent is not a seller and
determining the price actually paid or payable to the seller.

     Your request did not address the issue of risk of loss.  It
has been held that an "agent's liability for lost or damaged
goods would also tend to indicate a sale rather than an agency." 
New Trends, Inc. v. United States, 10 CIT 637, 645 F.Supp. 957,
961 (1986).  It has also been held that it is "uncharacteristic
of an agency relationship to allow the intermediary to bear the
risk for damaged, lost, or defective merchandise."  Rosenthal-
Netter, Inc. v. United States, supra, 679 F.Supp. at 26.  Under
the subject proposed agreement the agent bears the risk of
defective merchandise and concealed shortages or overages. 
Clearly the agreement by the alleged agent to accept risk of loss
for defective goods and concealed shortages or overages undercuts
the claim that the agreement describes an agency relationship.

     The services performed by the agent are those usually
performed by a bona fide buying agent.  If the terms of the
proposed buying agency agreement and those outlined above are
met, we are satisfied that the importer will exercise the
requisite degree of control over the buying agent.  Thus, on the
basis of the information you have provided regarding the
relationship between the importer, agent and seller, the totality
of the evidence indicates that the agent is in fact a bona fide
buying agent.  In addition, the submission of the agent's invoice
along with the seller's invoice would support that the agent is
not an independent seller and that the commission is not part of
the price paid or payable to the seller.  Therefore, we conclude
that the fees to be paid to the agent pursuant to the proposed
agreement constitute bona fide buying commissions which are not
included in the transaction value of the imported merchandise. 

     One issue not addressed in your request is whether there is
a relationship between the agent and the importer.  For the
purposes of this ruling, it is assumed that a relationship does
not exist.  If it does exist, it would need to be disclosed to
the appraising officer, as such related party transactions are
subject to close scrutiny.  HRL 544396 dated May 14, 1990;
Bushnell International, Inc. v. United States, 60 C.C.P.A. 157,
477 F.2d 1402 (1973).  

     This ruling is subject to the condition that the actual
transaction between the importer and the agent is as
characterized above and in the proposed agreement.  It is the
position of Customs that "having legal authority to act as buying
agent and acting as buying agent [are] two different matters" and
Customs is entitled to examine evidence which proves the latter. 
U.S. Customs Service General Notice, 11 Cus. Bull.& Dec. 15
(March 15, 1989).  See also Pier 1 Imports, Inc. v. United
States, 13 CIT 161, 708 F.Supp. 351 (1989); Jay-Arr Slimwear
Inc., supra; and Rosenthal-Netter, supra. 

     Please note that this determination that the agreement is a
factor that supports a finding that an agency relationship exists
in no way authorizes the acceptance of an annual fee of $-------
-- plus a -% - -% commission per shipment.  The appraising
officer will determine whether the total fee exceeds the
commission rate that is customary in the trade for bona fide
buying agents.  Documentary evidence detailing the extent of
services provided beyond those customarily performed by such
agents would need to be presented to the appraising officer.  In
addition, this ruling is limited to the proposed agreement, and
is not applicable to the existing agency agreement.

HOLDING:

     The proposed agreement as presented in your ruling request
would constitute a favorable factor supporting a finding that the
services provided by the agent pursuant to the agreement may be
considered the services of a bona fide buying agent, and thus the
agreement would constitute a factor supporting a finding that the
fees may be considered bona fide buying commissions.

                                   Sincerely,


                                   John Durant, Director
                                   Commercial Rulings Division